How to build a hands-off property portfolio

The number of investment properties purchased with a sitting tenant has reached its highest level for a decade. Of all rental properties bought last year, 11% included a sitting tenant – four times as many as 2008.

For landlords seeking a hands-off investment that delivers a regular income over the long term, a regulated tenancy offers a number of advantages. These include no void periods.

If a regulated tenancy started before 15 January 1989, sitting tenants are entitled to remain in the property as long as they pay a ‘fair rent’ (usually below market value). The lower amount of rent could be a result of an agreement that the rent value will be the same for the duration of tenancy (guaranteed rent), set by a council rent officer or because of a financial hardship of a tenant.

As a result of the rent charged being below market value, the majority of sitting tenancies end on the occupant’s death. As a long-term investment strategy, this can make sense because many landlords pay below market value for properties with sitting tenants and then either take advantage of the investment’s rise in value or treat it as a regular buy-to-let property investment.

However, it is wise to seek legal advice before buying a property with a sitting tenant because some regulated tenancies can be passed to a spouse, partner or child.

No interior maintenance

While sitting tenants are obliged to keep the interior of their property in a good state of repair – freeing landlords from many of the hassles of running a property portfolio – tenants do not have to carry out repairs to the exterior of their accommodation.

The value of keeping a reliable, long-term tenant in place is clear, but the number of properties with sitting tenants on offer is continuing to fall. This is why a growing number of buy-to-let investors are turning their attention to student property investments, and in particular the new-style of privately managed halls of residences.

Just as properties with sitting tenants eliminate the need to market the investment, the management teams behind the private halls of residence are responsible for filling the space available. And the growing number of students at UK universities means competition for places in these new-build homes with a host of luxury facilities is intense.

Should student properties be purchased off-plan and sold with the promise of excellent returns, capital growth at the time of exit can be the highest experienced in the property market.

Unlike old-style properties with sitting tenants, the market for student accommodation resales is set to grow.

And because new buyers want students to be in-situ in order to benefit from immediate rental yields, landlords are calling student properties the ultimate hands-off investment.